Friday, May 25, 2012

Huawei's EU antitrust complaint against InterDigital: unFRANDly demands are abusive

Yesterday, Chinese electronics giant Huawei announced that it had filed an EU antitrust complaint against InterDigital, a non-practicing entity that holds patents that it declared essential to 3G/UMTS and other telecommunications standards. In its own words, Huawei "urges the [European] Commission to intervene to end InterDigital's abuses of its patents allegedly essential to the 3G (UMTS) standard" and says InterDigital tries to "to force Huawei to conclude a discriminatory, unfair and exploitative license":

"In both the terms and scope, InterDigital's demand manifestly breaches the policies of the European Telecommunications Standards Institute calling for fair, reasonable, and non-discriminatory (FRAND) licensing practices by technology patent holders, and Article 102 of the Treaty on the Functioning of the European [Union]."

What's unknown is how much InterDigital wants. I don't suspect Huawei of trying to jump on the FRAND complaint bandwagon after the European Commission launched a proactive investigation of Samsung's conduct and, subsequently, two investigations of Motorola's conduct against Apple and Microsoft. After all, InterDigital's demands were also considered unreasonable by Nokia, which has been embroiled in litigation with that company for some time. The European part of the dispute was settled on terms that Nokia described as indicative of InterDigital's portfolio being weaker than its demands suggest.

It's definitely possible that InterDigital's demands are indeed abusive, and that Huawei has a point. But by demanding that Microsoft pay 2.25% of the price of an entire PC, which would render Microsoft's Windows operating system business unsustainable, Motorola's behavior is the worst case of abuse and InterDigital can hardly match it in terms of outrageousness. In InterDigital's case, I suspect that they ask for more than what I personally consider a FRAND rate, but most likely they do want to sign a deal since that's the only way an NPE can stay in business. Samsung and, above all, Motorola don't genuinely hope to sign license deals with those antitrust complainants even on the terms they demand but actually want injunctions for the purpose of leverage. In fact, an ITC judge looked at the facts and concluded that "Motorola was not interested in good faith negotiations and in extending a [F]RAND license" to Microsoft.

What's interesting about Huawei's announcement is that the company alleges an antitrust violation based on InterDigital's demands as opposed to taking action after sales bans resulted from litigation that followed failed negotiations. I, too, believe that blatantly unreasonable demands consitute a violation all by themselves. Certain German courts apply the Orange-Book-Standard logic even to cases in which companies made FRAND pledges, a school of thought that puts all the burden on implementers of standards and is a boon to abusers. I think the European Commission and other competition enforcers should ensure FRAND compliance at all stages of licensing negotiations, including demands made prior to litigation.

If anyone knows about the terms that InterDigital proposed to Huawei and wishes to leak a document that proves what those demands are, please contact me. I can't publish material from dubious sources, but I do protect my sources. (I have received material from pseudonymous email accounts, but in those cases I have to be rather skeptical until there's a way to verify.)

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